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U.S. Government Sues to Stop A-B InBev Merger With Corona Maker

DOJ Says $20.1B Acquisition Would Mean Higher Beer Prices

The U.S. Department of Justice is filing a lawsuit to stop Anheuser-Busch InBev's planned acquisition of Corona-maker Grupo Modelo of Mexico, delivering a potential blow to the growth plans of the world's largest brewer.

Corona and Modelo beer

"The department is taking this action to stop a merger between major beer brewers because it would result in less competition and higher beer prices for American consumers," Bill Baer, Assistant Attorney General in charge of the Department of Justice's Antitrust Division, said in a statement. "If [AB-InBev] fully owned and controlled Modelo, [A-B InBev] would be able to increase beer prices to American consumers. This lawsuit seeks to prevent [A-B InBev] from eliminating Modelo as an important competitive force in the beer industry."

As part of the planned acquisition, which was announced last summer, Grupo Modelo intends to sell its 50% stake in Crown Imports, the U.S. importer of Corona, to Constellation Brands, Crown's other owner, for $1.85 billion. Under that arrangement, Crown would continue to control marketing, distribution and pricing decisions stateside for Corona, as well as the other Modelo beers in its stable including Corona Light, Modelo Especial, Pacifico, Negra Modelo and Victoria. As a result, ad agency relationships are likely to remain unchanged if the deal goes through. The shop for Corona Extra is Cramer-Krasselt, while Goodby Silverstein & Partners has Corona Light and the fast-growing Modelo Especial brand.

The sale of the U.S. distribution rights to Crown was an attempt to ease anti-trust concerns in the states. But the Justice Department alleges that the "$20.1 billion transaction would substantially lessen competition in the market for beer in the United States as a whole and in 26 metropolitan areas across the United States."

The department stated that the beer market is already "highly concentrated, and prices are increased by strategic interactions among the largest brewers, including [A-B InBev] and MillerCoors." It added that "MillerCoors and other brewers have typically joined [A-B InBev's] price increases, while Modelo has not. By pricing aggressively, Modelo -- through its importer, Crown Imports -- puts pressure on ABI to maintain or lower prices, especially in certain parts of the country."

In a statement, A-B InBev responded that the lawsuit was "inconsistent with the law, the facts and the reality of the market place." The brewer stated that "we remain confident in our position, and we intend to vigorously contest the DOJ's action in federal court," but added that "given today's development, we no longer expect the deal to close during the first quarter of 2013."